Estate basis consistency reporting rules are proposed

Proposed and temporary regulations issued by the IRS on Wednesday govern the newly enacted provision that requires consistency between a recipient’s basis in certain property acquired from a decedent and the value of the property as finally determined for federal estate tax purposes (REG-127923-15; T.D. 9757). The regulations provide rules regarding the consistent basis reporting requirement and the required statement that must be furnished to the IRS and beneficiaries. They exempt from the reporting requirement estates that file an estate tax return just to claim portability of a deceased spouse’s estate tax exemption.

Consistent basis reporting

Sec. 1014(f) requires the basis of property acquired from a decedent to be consistent with the basis reported on the estate tax return. Under Sec. 1014(f)(1), the basis of property acquired from a decedent cannot exceed that property’s final value for purposes of the federal estate tax imposed on the estate of the decedent, or, if the final value has not been determined, the value reported on the statement required under Sec. 6035 (Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent). Sec. 6035 requires that each person required to file a return under Sec. 6018 (an estate tax return) provide a statement to the IRS and to each other person who holds a legal or beneficial interest in the property to which the return relates.

The consistent basis requirement of Sec. 1014(f)(1) applies only to property where the inclusion of that property in the decedent’s gross estate for federal estate tax purposes increases the estate tax liability. The proposed regulations define this property as property includible in the gross estate under Sec. 2031 and property subject to tax under Sec. 2106 that generates a federal estate tax liability in excess of allowable credits. The regulations specifically exclude all property reported on a required estate tax return if no estate tax is imposed on the estate due to allowable credits (other than the credit for tax prepayment).

If federal estate tax is due, the proposed regulations exclude property that qualifies for the marital or charitable deduction because this property does not increase federal estate tax liability. The AICPA had suggested this provision be included in the rules in a comment letter sent to the IRS in January. These assets, however, must still be reported under Sec 6035.

The final value of property is defined in the proposed rules as either (1) the value reported on a federal estate tax return filed with the IRS that the IRS does not contest before the period of limitation on assessment expires; (2) the value the IRS specifies if it is not timely contested by the estate’s executor of the estate; or (3) the value as determined by a court or under a settlement agreement with the IRS.

An executor is defined in the proposed regulations as having the same meaning as in Sec. 2203, which includes appointed administrators and executors, and, if there is no administrator or executor, any person who is in actual or constructive possession of any of the decedent’s property, but also includes any beneficiary required to file an estate tax return under Sec. 6018(b). Read more on the Journal of Accountancy.